Why small producers are driving innovation in new food products

The past few years have seen numerous challenges for small and medium-sized food manufacturers, but new research shows that smaller producers drove innovation last year while larger businesses took their foot off the accelerator.

SME manufacturers across Europe were responsible for 75% of all new products launched, making the most of their ability to be nimble and agile amidst changing market forces, according to research firm Circana’s Race for Resilience: Innovation Pacesetters report.

Small producers contributed to 68% of total value sales from new products, found the report, which covered the six largest markets in Europe: the UK, France, Italy, Germany, Spain and the Netherlands.

Overall, product innovations declined across the last two years as more and more businesses decided against gambling on new products amidst the cost-of-living crisis and tough trading conditions.

A competitive advantage

As larger brands play it safe, what’s driving smaller producers to continue innovation? Cheerful Buddha founder James Wright tells Speciality Food it’s often easier for SMEs to innovate compared with larger companies because they are closer to their customers and able to bring products to the market quickly.

“We very much have our ear to the ground in terms of listening to what our customers want and identifying new trends so that we can then present them in unique and interesting ways.” For example, the brand has launched a range of lion’s mane teas, which harness the adaptogen trend. “As a young brand, we’re focused on building our product range, and product innovation helps us to define and secure our place in the market.”

Innovation is an important sustainable source of organic growth for businesses both large and small, according to Ananda Roy, global senior vice president of strategic growth insights at Circana. 

“New product launches can feel like a gamble when there is increasing competition for shelf space, especially at a time when the industry is experiencing declines in sales volumes of FMCG products,” Ananda says. “However, there is no doubt that it can add immense value too, giving brands the opportunity to expand an existing portfolio or even create an entirely new one. Innovations continue to be resilient and help to drive demand despite inflationary headwinds.”

For Peter Grainger, co-founder of CafePod, continued innovation is critical for finding new gaps in the market and driving sales amidst the cost-of-living crisis. For example, the brand recently launched its first half-caff coffee to add to its decaf range in the hopes of addressing the gap in afternoon and evening coffee drinking at home. Testing and innovation also help small brands to establish their niche. “We know first-hand from a list of 20 innovations that consumers prefer strong coffees every time. We’re launching a new intense blend this month in response to this demand,” Peter says.

James believes innovation is central to what SMEs do. “Our commitment to launching new products reflects an entrepreneurial spirit that I think is typical of SMEs: we have a buzz of ideas, we’re willing to take risks, and we’re committed to impacting the market with challenger-style products that deviate from the norm and get people to think about their ingredients more – and what those ingredients are doing to their wellness and to the planet,” he says.

Krisi Smith, founder Bird & Blend Tea Co, agrees. “I love creating new tea blends, it’s something I’m passionate about and it’s a job that really tests my creativity! My alternative job title is ‘Chief Tea Mixologist’ and I head up product innovation & NPD at Bird & Blend, as well as being the founder,” she says. “We know how passionate and completely obsessed our customers are about the blend flavours we create, and they always want more! We specialise in creating unique flavours and exciting products that surprise and delight our customers.”

These views align with Circana’s research, which found that consumers expect new product launches to:

• Add value, such as having new features (77%)
• Be better for health and wellness (71%)
• Be better for the environment (68%)
• Be trusted (65%)
• Fit with their lifestyle (73%)
• Help them achieve their goals (67%)

5 areas where are producers innovating

Chilled and fresh

New product launches in the chilled and fresh category delivered the most value despite fewer products being launched, the research found. Most producers tapped into healthy eating trends such as plant-based and natural foods.

Baby foods

Innovation drove 6% of total baby food value sales, a growth of 75% over last year as parents sought healthier options that met a variety of taste, ingredient and diet options.

Pet foods

Innovation in pet food jumped by 39% as more people took ownership of pets. Manufacturers in the UK and Italy particularly sought to provide healthier treats and food to pets.

Frozen food

Frozen food product value rose by 40% on the previous year, driven by consumers choosing frozen instead of chilled and fresh to meet new food planning behaviours and avoid waste.

No/low and RTD beverages

While brewers’ new product launches fell, the focus on low/no alcohol and ready to drink increased. Alcohol volume sales overall showed a significant decline, resulting in 15% less value share derived from new products.

Can we expect more innovation on the cards in 2023 and beyond? “To remain competitive, brand owners need to make the benefit of the innovation relevant to evolving consumer needs,” Circana’s Ananda says. “They need to tap into and market the transformation, not just the product feature. A targeted innovation strategy can help address the relentless search for growth in 2023 and beyond, especially as we continue to see the rules of the consumer goods category being re-written. 

“This evolving innovation ecosystem will be the driving force for change across an industry struggling to cope with the changing consumer landscape.”